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The Cboe S&P 500® Implied Correlation Indexes

The Cboe S&P 500 Implied Correlation Indexes are the first widely disseminated, market-based estimate of the average correlation of the stocks that comprise the S&P 500® Index (SPX).

Using SPX options prices, together with the prices of options on the 50 largest stocks in the S&P 500 Index, the Cboe S&P 500 Implied Correlation Indexes offers insight into the relative cost of SPX options compared to the price of options on individual stocks that comprise the S&P 500.

Cboe began disseminating daily values for the Cboe S&P 500 Implied Correlation Indexes in July 2009, with historical values back to 2007.

Cboe calculates and disseminates two indexes tied to two different maturities, usually one year and two years out. The index values are published every 15 seconds throughout the trading day.

Both are measures of the expected average correlation of price returns of S&P 500 Index components, implied through SPX option prices and prices of single-stock options on the 50 largest components of the SPX.

Ticker symbols KCJ, ICJ, and JCJ are "rotated" as time elapses. For example, as of December 2016:

KCJSM

Jan 2021 maturity S&P 500 implied correlation

Calculated using Jan 2021 equity options and Dec 2020 SPX options

Quotation is suspended after the Nov 2020 SPX expiration

ICJSM

Jan 2022 maturity S&P 500 implied correlation

Calculated using Jan 2022 equity options and Dec 2021 SPX options

Quotation is suspended after the Nov 2021 SPX expiration

JCJSM

Not quoted until after the Nov 2020 SPX expiration

Jan 2023 maturity S&P 500 implied correlation

The Cboe S&P 500 Implied Correlation Indexes may be used to provide trading signals for a strategy known as volatility dispersion (or correlation) trading. For example, a long volatility dispersion trade is characterized by selling at-the-money index option straddles and purchasing at-the-money straddles in options on index components. One interpretation of this strategy is that when implied correlation is high, index option premiums are rich relative to single-stock options. Therefore, it may be profitable to sell the rich index options and buy the relatively inexpensive equity options.